The impact of financing on the investments of SMEs during the recent Financial Crisis

This paper examines how the recent financial crisis has affected the investments of small and medium-sized enterprises (SMEs). Using a novel dataset of private firms from the Netherlands for the period of 2004–2012 and controlling for major firm-specific variables, we find that the investments of Dutch SMEs suffered a significant decline during the financial crisis. We also find that both internal and external financing have significant positive relationships with the investments of SMEs during the pre-crisis as well as the crisis periods. However, these two financing sources exhibit no differential impact during the crisis. The findings of the study lend some relief to those practitioners and policymakers who are concerned that the contraction in bank lending during the economic crisis has a differential damaging impact on the investments of SMEs.